Affiliation:
1. DePaul University
2. Federal Reserve Board of Governors
Abstract
Abstract
Two main creditors exist in commercial real estate: arm’s-length investors and banks. We model commercial mortgage-backed securities (CMBS) as the less informed source of credit. In equilibrium, these investors fund properties with a low probability of distress, and banks fund properties that may require renegotiation. As a natural experiment, we test the model using the collapse of the CMBS market during 2007–2009, when banks funded both collateral types. Our results show that properties likely to have been securitized were less likely to default or be renegotiated. This suggests that securitization in this market funds safe collateral.
Publisher
Oxford University Press (OUP)
Subject
Economics and Econometrics,Finance,Accounting
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